Act-Of-War Determination Will Influence Coverage
By
Caroline McDonald
The question of the day for the insurance industry and its policyholders might not simply be how many billions of dollars will be sustained in losses from last weeks terrorist attack on the World Trade Center towers, but whether the action is proclaimed to be an act of war.
"Thats the $64,000 question," said Thomas Mallin, president of the Downers Grove, Ill.-based Property Loss Research Bureau. "The main issue is whether or not the typical war exclusions would apply."
Most property policies include a war exclusion, he explained–adding, however, that "until we find out who was responsible, we really cant say for sure that there was any nation involved on the other side of this."
Mr. Mallin said the official definition of a war requires "a conflict between nations," and that "if [terrorist] Bin Laden is responsible, he is not a nation, even though he may be harbored by a nation."
He explained that case law suggests that war exclusions dont apply except in cases of attacks orchestrated by countries that have a "recognized relationship" with the United States. If a nation is involved and claims responsibility, "then probably that would be an act of war," he said. However, if a "fanatic religious or political group is involved, the war exclusion would probably never apply."
As it stands, the issue is open to interpretation as to whether the attack on the World Trade Center was an act of terrorism, which most policies do not exclude, he said. However, "if it is considered terrorism, all other exposures, such as business interruption, would be triggered," he explained.
Mr. Mallin said the possibility is strong that the U.S. government could determine that the damage is a result of an act of aggression towards the government. In that case, "there may well be government intervention in terms of the losses," he said. "Down the road in a few weeks I wouldnt be surprised to hear about legislation giving grants or loans for rebuilding. In that case, obviously those monies would take precedence over any private insurance money that would be available," he surmised.
"We were innocent in this attack, and theres nothing to stop the government from believing that the citizenry should be reimbursed, deeming the attack as one against the government," he said.
He cited as an example wildfires that raged out of control in New Mexico last summer. Weeks after the event occurred, he said, Congress claimed responsibility for the fire started inadvertently by forest rangers. Funds were subsequently appropriated for people with property damage and to reimburse insurers that had already paid claims.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 17, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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